Lifetime Value: Why This Business Should Be Getting Easier08/01/2019
I want to talk about why this business should get easier and much more rewarding over time if you have a systematic process for getting in front of your clients.
Let’s start with some fascinating statistics that demonstrate why this is the case. Then, I’ll show you the secret of how to give your income a boost while working less.
Don’t Give Up Too Soon
First, we’ll talk about a cardinal sin in this business: giving up on potential clients too soon. Often when reps meet with a new prospective client, they’ll work desperately to get them to buy something. Then, if nothing is purchased, they throw the potential client away.
However, we know that one-third of your clients will buy two to three years after the initial meeting. Two-thirds of your new clients will buy in the year you meet.
By throwing potential clients away when they don’t buy, you’re missing a third of the people you could potentially sell. Think about all the premiums you could be missing out on.
All Premiums Are Not Created Equal
Second, after you’ve made the first sale, future purchases will require much less effort on your part.
Once they know you and trust you, clients will be more willing to follow your advice. Typically, the more purchases a client has made, the smaller the time and effort on your part to close a new sale. How this phenomenon can change your business is truly eye opening.
Statistics tell us that the average client will buy your risk management products seven separate times. These include life insurance, disability insurance, annuities, and long-term care. Your best clients will buy 12 or 13 times. Yet, the sales effort required actually goes down with each subsequent sale!
Consider that it takes approximately 23 hours of effort, eyeball to eyeball, to make a sale to a new client. However, the second sale takes less than three hours, and every sale after that requires slightly less time as you build the relationship.
If you build trust over time, clients will follow your advice much more quickly. However, to benefit, you must have a systemic process for consistently getting in front of your clients.
Grow Premiums Exponentially
Third, the size of the premium grows with each purchase that a client makes. The statistic that proves this point is so jaw dropping that most people don’t believe me at first.
It relates to risk management products and the underlying premium earned from those products: on average, every single sale is greater in premium than the summation of all the previous sales.
Let me offer an example. On average, the premium of that fourth sale per client will outweigh the premium of the first, second, and third sale combined:
4th sale premium > 1st + 2nd + 3rd premiums
At first glance, you probably don’t believe it. Yet when selling risk management products, which require immense trust through years of relationship building, it makes perfect sense.
The lower-end premium products can be bought simply through logic alone. For example, suppose you meet a young family with no life insurance and you help them understand their needs – let’s say that’s $1 million on the breadwinner and $250,000 on the stay-at-home spouse. For them it’s a logical decision to buy that in term insurance. At a very low premium and short policy duration, they’ll make the decision to purchase it rather quickly.
However, to explain why they need to buy permanent insurance and spend thousands of dollars on annual premiums, you need to focus on building trust. Trust is earned over time, so life insurance clients are much more prone to buy term insurance early on, before converting to permanent insurance as they begin to have a higher degree of trust in their advisor.
The same logic holds true for retirement products like annuities. That’s why the premiums get bigger and bigger with the passage of time.
It All Starts with the Annual Review
The points that we covered show that trust is built over time, and it may take 10 years or more to get there. However, you will be rewarded by spending less time per sale and earning much higher premiums.
To benefit from this tremendous opportunity, you need to have a process for getting in front of your clients on a systematic basis to build the necessary trust. The secret to doing that is the annual review.
The annual review provides an opportunity for a face-to-face meeting and lays the groundwork for a mutually beneficial relationship based on trust. Our objective is to work with the client to help them take complete ownership of the journey to long-term financial security.
We want our clients to feel continuity in our planning process, from where they started, to where they are going. They want to know that we have a plan and that there’s light at the end of the tunnel. Financial security is a 30- or 40-year journey, and they will have the confidence to place increasing trust in you with each passing year.
With increasing trust, sales opportunities will present themselves, and your clients will become more valuable the longer they have been with you. As I mentioned earlier, the average client buys seven separate times. Through annual reviews, you open additional cases and do so with less effort and higher premiums. You’ll be able to introduce products such as permanent life insurance and income annuities with ease. All the while, you’ll be earning more and having the kind of work-life balance you’ve always wanted.